Tag Archives: bailout

David Shepardson/ Detroit News Washington Bureau

The Treasury Department dramatically boosted its estimate of losses from its $85 billion auto industry bailout by more than $9 billion in the face of General Motors Co.’s steep stock decline.

In its monthly report to Congress, the Treasury Department now says it expects to lose $23.6 billion, up from its previous estimate of $14.33 billion.

The Treasury now pegs the cost of the bailout of GM, Chrysler Group LLC and the auto finance companies at $79.6 billion. It no longer includes $5 billion it set aside to guarantee payments to auto suppliers in 2009.

The big increase is a reflection of the sharp decline in the value of GM’s share price.

The current estimate of losses is based on GM’s Sept. 30 closing price of $20.18, down one-third over the previous quarterly price.

GM’s stock closed Monday at $22.99, up 2 percent. The government won’t reassess the estimate of the costs until Dec. 30.

The government has recovered $23.2 billion of its $49.5 billion GM bailout, and cut its stake in the company from 61 percent to 26.5 percent. But it has been forced to put on hold the sale of its remaining 500 million shares of stock.

The new estimate also hikes the overall cost of the $700 billion Troubled Asset Relief Program costs to taxpayers. TARP is the emergency program approved by Congress in late 2008 at the height of the financial crisis.

In total, the government used $425 billion to bailout banks, insurance companies and automakers, and provided $45 billion in housing program assistance.

The government now expects to lose $57.33 billion, including the full cost of the housing program, up from $36.7 billion. The new estimate means the government doesn’t believe it will make an overall profit on its bailouts.

An extraordinary day in Irish politics ended in a major setback for Brian Cowen’s government last night after his coalition allies forced him to concede an election as soon as his budget goes through.

The Green party, which has kept Mr Cowen’s Fianna Fail in power for several years, effectively pulled the plug by calling for an election in January, giving him little notice of its demands.

After a day of frantic activity in which it became clear the government would not last beyond January, the Irish Prime Minister gave way to the demands of the Greens, who specified they would stay in government until the budget was passed and an agreement hammered out with the IMF, EU and European Central Bank.

Mr Cowen’s sudden announcement transformed the Dublin political landscape at exactly the moment that the intervention of the international European institutions changes the economic landscape.

The main opposition parties meanwhile repeated their demands for an immediate election, in the knowledge that Fianna Fail is so unpopular that it is bound to be swept from office whenever a contest is held.

Officials from the IMF, EU and ECB continued their work in Dublin on a programme designed to enact widespread cuts and new taxes to the tune of €15bn (£13bn). They are expected to provide up to €90bn in funds and promises.

As far as the EU is concerned, the precise complexion of the Dublin government is less important than securing a deal and avoiding the “contagion” that so nearly destroyed the euro itself during the Greek crisis.

Portugal and Spain are the next nations in danger. “Of course if Spain does get caught in the crosshairs, it’s going to be an absolute nightmare for Europe because it just can’t bail it out. It hasn’t got the facilities,” David Morrison, market strategist at GFT Global, said. Confidence in Ireland, already at a low level, could dip further if scenes of social unrest follow demonstrations being called by the trade unions. For now, it remains unclear whether the Ireland bailout will be conditional on a rise in her corporation tax rate, currently 12.5 per cent, the lowest among EU countries.

Resented by the UK, France and Germany, it is a “red line” for Irish negotiators. The risk with making Ireland push it up, as with the expected budget cuts, is that such moves might actually deprive Ireland of the ability to grow her way out of trouble.

Some six months after her bailout, Greece’s position remains precarious, partly for that reason. By January at the latest, a general election will sweep the deeply unpopular Fianna Fail party from power. But by then the EU and IMF hope that the Irish parliament will have accepted a four-year plan and a budget making cuts of €6bn.

The government’s four-year plan is due to be unveiled tomorrow with the budget to follow on 7 December. But there is no absolute assurance that the budget will pass, since yesterday independents – who normally support the administration – announced they are highly unlikely to do so. The fact that Mr Cowen’s troubled administration had finally run out of road emerged on a day of fast-moving developments triggered by the Green party’s call for an election.

The Greens said they wanted an election because “the past week has been a traumatic one for the Irish electorate – people feel misled and betrayed.” This was followed by more bad news for Mr Cowen when the independents threatened to vote against his budget.

Several of his own backbenchers also weighed in, calling on him to resign, while a senior party figure said the party should gather after Christmas to consider its leadership. A former minister, Mary O’Rourke, said of Fianna Fail members: “They are confused. There is distinct worry about the future of the party. We can’t run around in circles any more.”

The day had not started so badly for the government. Until the announcement by the Greens, the markets had reacted favourably to economic developments. The “risk premium” demanded by investors to hold Irish government bonds had fallen, indicating that they felt a general meltdown in the eurozone was becoming less likely. But fears of contagion to other eurozone nations remain. The Portuguese Prime Minister, Jose Socrates, said he hopes emergency funding for Ireland will end uncertainty in the financial markets: “[Portugal] does not need any help. What the country needs is to approve the budget, and to continue in its efforts [to cut its deficit].”

But it was not long until the major opposition parties were calling for an immediate election. Dublin politics was thus plunged into a swirl of uncertainty about whether Mr Cowen could get his budget through and whether he personally will survive the crisis.

While Mr Cowen’s Fianna Fail party is the most efficient election machine in Ireland, with support at a dismal 19 per cent it stands no chance of re-election. It is universally expected to be displaced by a coalition of the two biggest opposition parties. Although some speculated that Fine Gael might facilitate Mr Cowen in getting his budget through, the party warned that it would not give the government a blank cheque. Mr Cowen said last night that he wants to continue in his job. Asked if he would lead his party into the next election, he said it was an issue for the party to decide.

Fannie and Freddie, the federally-controlled mortgage finance giants, will likely need at least another $73 billion and perhaps as much $215 billion from taxpayers in the next three years to meet their financial obligations, the Federal Housing Finance Agency said.

The growing taxpayer infusions will cover losses Fannie and Freddie suffer on home loans, as well as payments the companies must make to the U.S. Treasury in exchange for a federal guarantee to provide cash to keep the companies solvent.

In fact, over time, the majority of funds flowing to Fannie and Freddie from taxpayers will go to pay that dividend.

To date, the Treasury has already injected $148 billion into Fannie and Freddie. Under the worst-case scenario, in which the country enters a second recession, the total infusion would equal $363 billion in three years.

The projections of additional bailouts for Fannie and Freddie are in sharp contrast to recent discussions by the Obama administration about how the bank rescue known as the Troubled Assets Relief Program, originally valued a $700 billion, is expected to cost taxpayers less than a tenth of that.

Fannie and Freddie were seized by their federal regulator in September 2008 as the crisis in the housing market threatened to topple them. The Bush administration pledged $200 billion to keep them solvent. Early on, the Obama administration doubled that number to $400 billion, and then late last year made an unlimited pledge of support.

The companies play a central role in the housing market, buying or guaranteeing most home loans. With the collapse of the private market for home loans, they have been essential to keeping interest rates low and the housing market from falling more.

But they also are deeply controversial and were one of the causes of the financial crisis. The Obama administration is set to release a proposal to overhaul or replace them in January. That decision will ultimately be made by the administration in concert with Congress.

The Federal Housing Finance Agency made the projections based on stress tests similar to those that were applied to the largest banks last year. The best-case scenario assumes that housing prices improve soon, a middle-case scenario assumes that housing prices decline slightly and then begin to improve, and a worst-case scenario assumes deep declines.

In the middle-case scenario, Fannie and Freddie would need $90 billion more in taxpayer support.Read Full Article Here

With the Dow holding above 10,000, investors are beginning to feel more comfortable.

The question is… Is it real or smoke and mirrors?

Let’s take a look at the facts:

Stocks Are Mathematically Over Bought, now trading at approximately 24 times adjusted earnings. The fair value ratio is 16; a clear indication the enter Dow Index is too high.

Inflation and Deflation, indicators are pointing to a deep recession. We are seeing lower prices, better known as deflation in all the wrong sectors. Such as, investment and saving accounts, luxury goods, company revenues and wages. While inflation is rising in food-based commodities, food prices are rising at an alarming rate.

Neck Deep in Debt: The Federal Reserve, Obama and the Treasury Department are creating more debt, all in the effort to keep the U.S. economy from crashing. The scary point that must be made is, China and other overseas buyers of our debt… Just don’t want it any more. We’re having to buy back our own T-Bonds, that go unsold at every auction.

Real Unemployment continues to rise, we all know government reported data leaves out key sectors, such as people who exhaust their claims, part time workers in search of full time work, independent contractors etc. Unfortunately, the trend is not going to stop; U. S. manufacturers simply can’t compete with china’s cost of manufacturing. Every day more and more companies are forced to outsource to stay competitive in the market place.

Housing Market continues to drop; prices are falling due to excess inventories of foreclosures. Tight credit and restrictions by lenders are squeezing the life out of any recovery. What’s rarely talked about, is the “shadow” inventory; banks are holding on to properties, because releasing them would drown the housing market. Homeowners are now able to stay in their home for over 2 years, without an actual foreclosure and without making a single payment. Auction dates are simply pushed forward.

Americans are suffering, wages are dropping along with quality of life. Personal bankruptcies are 29% higher than last year. Its gets worse… over 36 million American’s, that’s 1 in 8 American’s, now receive food stamps.

Yet, Obama and his wife spend our Tax money on lavish vacations. We’ve even paid for “Bo” (the Obama family dog) to fly in his own private plane to meet the Obama’s in their Maine vacation.

Print more money and create more debt, seems to be the answer to all of our troubles.

With all of the above said, why is the stock market holding above 10,000?

Smoke and Mirrors… It simply won’t hold for too long.

You see, companies’ forecasted “less than positive” earnings. Coincidently, earnings came in better than expected and stocks rallied.

If life was that simple!

Companies were able to squeeze out a profit, because they cut jobs, wages, spending and employee hours.

The recovery and the Dow above 10,000 is not real; it won’t last too long.

We’re walking into Sept, October and November, historically the worst time of the year for the stock market.

It’s not a coincidence that the collapse of 1987, 2008, and 1929 happened the same time every year. The key month being OCTOBER.

Ever heard of the term BLACK OCTOBER?

There’s a lengthy detailed reason, as to why and how this down trend takes place at the same time of the year.

It all has to do with the financial industry’s fiscal year end and the balancing of “books” by money, pension and fund managers.

With all of the “financial reform”,… This year will be the year of all years!

Major financial institutions like J.P. Morgan, Goldman Sachs and Deutsche Bank will have to unwind options they hold, on open stock positions.

It’s going to get really ugly, real fast.

It’s still time to rethink what your holding and look for investment vehicles that profit in economic turmoil.

The biggest earmark in American history has been doled out to a company in Illinois, the President’s home state, in the name of green jobs. The President’s $862 billion Stimulus plan has been an abysmal failure. It provided states and localities with billions in bailout moneys, funded wasteful projects like the Monkey cocaine study at Wake Forest and given false hope to Americans that the President has ideas to turn around the economy. This earmark is an outrage and the signature project of the President’s Stimulus plan. Thankfully, Senator Tom Coburn (R-OK) is sounding the alarm bells and educating the American people to this new Obama outrage.

President Obama is earmarking $1 billion in Stimulus money “to build FutureGen 2.0, a clean coal repowering program and carbon dioxide (CO2) storage network” in his home state of Illinois. According to a Department of Energy press release, this billion is being provided to ”FutureGen Alliance, Ameren Energy Resources, Babcock & Wilcox, and Air Liquide Process & Costruction, Inc. to build FutureGen 2.0, a clean coal repowering program and carbon dioxide (CO2) storage network.” That is right — $1 billion. This is the largest earmark of money in U.S. history and they are taking money right out of your pocket to pay for it.

The Department of Energy projects 1,900 jobs as a result of $1,000,000,000 in new spending. This works out to $526,315.79 of your tax dollars spent per job. A half million dollars per job seems to be a bad deal for the taxpayer. Of more concern to the taxpayer, Senator Tom Coburn believes this project to be more about bringing home pork to Illinois than providing stimulus to average Americans.

According to Secretary of Energy Steven Chu yesterday:

Today’s announcement will help ensure the US remains competitive in a carbon constrained economy, creating jobs while reducing greenhouse gas pollution. This investment in the world’s first, commercial-scale, oxy-combustion power plant will help to open up the over $300 billion market for coal unit repowering and position the country as a leader in an important part of the global clean energy economy

Although the President promised to keep the $862 billion stimulus plan free from earmarks, this project was an earmark in the Stimulus, yet the Washington Post reported on March 6, 2009:

Deep inside the economic stimulus package is a $1 billion prize that, in five short words, shows the benefits of being in power in Washington. The funding, for “fossil energy research and development,” is likely to go to a power plant in a small Illinois town, a project whose longtime backers include a group of powerful lawmakers from the state, among them President Obama.

Now, the Department of Energy has announced the $1 billion in funding for the earmark in President Obama’s home state. This earmark funnels tax dollars from Americans to Illinois. Senator Tom Coburn criticized the first version of this project, FutureGen 1.0, and an argues that this project calls in to question President Obama’s Stimulus plan.

Senator Coburn said of the $1 billion earmark:

This costly and gratuitous earmark further calls into question the integrity of the Recovery Act. This decision appears to have more to do with politics and geography than science. FutureGen 1.0 was called ‘YesterGen’ because it had little scientific value. Now, taxpayers are being forced to finance the largest pork-barrel project in our nation’s history with borrowed money. Adding another $1 billion to our debt for a dubious project will only delay our recovery.

Coburn isn’t the only one concerned. Some greenies on left argue that this project is not efficient and will not do enough to protect the environment. The original FutureGen plan was scaled back and the promises of capturing 90% of carbon emissions became a promise FutureGen could not keep.

The environmental group, the Clean Air Taskforce, was quoted in the Wyoming Business Report:

The reinstatement of FutureGen should be an important milestone and a day for celebration. Unfortunately, it is not. In scaling back the amount of carbon the plant will capture from 90 percent to 60 percent in order to cut costs, the Obama Administration has turned FutureGen to YesterGen.

For months, the Obama Administration and Congress said that the Stimulus language was not an earmark for this company in Illinois. We now know that assertion to be false. The actions yesterday from Secretary of Energy Steven Chu confirm suspicions that this is the biggest earmark in American history. FutureGen in Matoon, Illinois gets $1 billion and average Americans are provided with the bill.

President Obama, Senator Dick Durbin (D-IL) and Secretary Chu need to explain to the American people how this happened. How did this earmark get into the Stimulus? Why is the Obama Administration funnelling $1 billion into Illinois for a project of dubious effectiveness. Unemployment today stands at 9.5% and the Stimulus has proven to have had no effect on unemployment rates.

Ths President’s Stimulus is a failure and many on the Hill are concerned about this project as evidence of special treatment for some companies in the President’s home state. This is exactly the type of waste, fraud and abuse that motivate average Americans to join the Tea Party movement to continue to distrust the federal government